Commodities may rally as central banks boost money supply further and cut interest rates to combat slowing economic growth, according to Renaissance Asset Managers, a unit of Moscow-based Renaissance Group.
“Money will continue to be plentiful and free, and that will continue to underwrite a commodity cycle,” said Chief Investment Officer Plamen Monovski, who oversees about $2.2 billion and formerly co-managed as much as $9 billion at BlackRock Inc. (BLK), the world’s biggest asset manager.
Central banks are undertaking the broadest reduction in borrowing costs since 2009 to avert a global slump stemming from Europe’s sovereign-debt turmoil. The U.S., the U.K. and nine other nations, along with the European Central Bank, have bolstered monetary stimulus in the past three months. While commodities have rallied this year, global equities have dropped.
Governments are “yet again going to flood the world with cheap money and make commodities more valuable,” said London- based Monovski in an interview in Singapore yesterday. “We’re going to see the same effect of cheap money spilling into commodities and emerging markets.”
The Federal Reserve, the ECB and central banks of Canada, Switzerland, Japan and the U.K. on Nov. 30 made it cheaper for banks to borrow dollars (DXY) in emergencies. In China, the central bank said the same day that banks’ reserve requirements will fall 50 basis points in the first reduction since 2008.
China, the world’s largest user of base metals and energy, may reduce interest rates next year as inflation eases, according to Song Yu, a Beijing-based economist for Goldman Sachs Group Inc. Goldman also expects commodities to rally in 2012 as the global economy avoids recession, analysts led by London-based Jeffrey Currie said in a report yesterday.
Renaissance invests in “places with commodities woven into the economy,” said Bulgarian-born Monovski, who’s invested in emerging markets for 15 years. He gave Africa and Russia as examples and said investments include equities and debt holdings.
Commodities had their worst quarter since 2008 in the three months to Sept. 30 on concern that Europe’s debt crisis was spreading. The Standard & Poor’s GSCI Spot Index of 24 raw materials has risen 11 percent since then as central banks took steps to ease pressures on financial markets.
In 2009, commodities surged 50 percent for their best annual run since at least 1971 as governments around the world ramped up stimulus spending to lift their economies out of the worst recession since World War II. This year, the S&P GSCI Spot Index has rallied 4.1 percent, while global stocks as tracked by the MSCI All-Country World Index have declined 8.7 percent.
Europe’s debt crisis has stoked concern that the region may slip into recession, endangering the global expansion. There is a 50 percent chance of recessions in the U.S., the U.K. and euro zone economies in the next 12 months, Nouriel Roubini, co- founder of Roubini Global Economics LLC, said in October.
The turmoil in Europe won’t push the global economy into recession because liquidity provided by central banks is fueling underlying demand, Franklin Templeton Investments’ Mark Mobius said last month. Governments “continue to pump money into the system and interest rates are low,” said Mobius, who oversees more than $40 billion in assets as executive chairman of Templeton Emerging Markets Group.
Renaissance is targeting investments in Africa, the world’s poorest continent, said Monovski. “It’s huge, it’s undiscovered, it’s cyclically depressed, it has commodity endowments, it’s undergoing governance change.”
The International Monetary Fund estimates sub-Saharan Africa may grow 5.75 percent in 2012. Still, the region will not be shielded from another global slowdown if the outlook in developed economies worsens, the IMF said on Oct. 19.
Parent Renaissance Group plans to invest “several more billions” in Africa, Chief Executive Officer Stephen Jennings said in May. The group includes Renaissance Capital, a brokerage partly owned by billionaire Mikhail Prokhorov.
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